The Age of Geo-Economics
In his speech, Director Suzuki Ichihito discussed the concept of “The Age of Geo-Economics,” highlighting the growing importance of economic security. He explained that following World War II, with the rise of free trade agreements, global economic integration thrived, leading to increased economic exchanges between nations. However, recent shifts in the global political landscape have emphasized the significance of geo-economics.
Geo-economics refers to the use of economic power by nations to achieve their political goals. In this context, economic activities are closely tied to political factors, with governments using economic means to exert pressure on other countries to achieve their political objectives.
Suzuki’s Institute for Geo-Economics Studies at the International House of Japan focuses on researching this emerging field. As the world changes, economic activity requires consideration of political factors. Nations may use economic tools to reach political objectives, impacting supply chains. For example, political considerations drive U.S. restrictions and embargoes on China in the semiconductor sector.
Technology’s advantages can achieve political goals, but tensions may arise between private and public interests. For instance, while the U.S. government imposes restrictions on China, American companies might benefit from trading with China. These conflicting interests might lead to companies’ resistance to government policies.
To address this, Suzuki’s institute collaborates with Japanese corporate representatives to advise the Japanese government on policies integrating government and corporate interests. This approach seeks to harmonize policies with private sector benefits while considering international security and national political interests.
What is Economic Security?
Economic security varies by country, generally defined as “building capacities to resist intimidation by other nations through economic means.” It is intended to protect a country’s economic and social order. The United States views economic security as a form of national security, often using offensive economic measures, like the U.S. CHIPS Act, to protect its semiconductor industry and ensure the global order aligns with its interests.
Suzuki presented two main measures Japan uses to ensure economic security:
- Autonomy: Minimizing reliance on external supply chains.
- Indispensability: Creating dependency from other countries on Japan to reduce threats.
These measures aim to safeguard Japan and its industries from strategic resource threats. Taiwan’s “silicon shield,” where other countries rely on Taiwan’s semiconductor production, mitigates pressure from China. Japan’s strong industrial and manufacturing capabilities, coupled with recent legislation like the “Economic Security Promotion Act” under Prime Minister Fumio Kishida, are designed to strengthen Japan’s economic security, making it less reliant on other countries in the supply chain. This reduces international shocks and threats, allowing Japan to become more self-sufficient and less dependent on external sources, especially in technology.
Navigating a Shifting Global Order
The world is experiencing turbulence as China rises and the U.S.-led international order loses its grip. The global structure is shifting from rules-based to power-centered, with U.S.-China competition becoming more pronounced, especially in emerging technologies. While the U.S. might not always maintain its technological lead, China is gaining ground in several sectors. The accompanying diagram (Figure 1) illustrates the competition between the U.S. and China in emerging technologies.
Tech Hegemony in the Semiconductor Sector
Suzuki emphasized the critical role of semiconductors in economic security, pointing out that they are the foundation of modern industry and key to national technological competitiveness. Thus, countries should invest in semiconductor development to ensure secure supply chains.
Two major camps exist in the race for tech supremacy: democracy and authoritarianism. The U.S. uses state power to force China to alter its policies, applying pressure in technology domains where it holds an advantage. For instance, the U.S. restricts the export of advanced chips to China, and companies like ASML in the Netherlands are barred from exporting high-tech etching machines. The U.S. also enforces restrictions to prevent advanced chips from reaching China through third-party countries. Japan has followed the U.S. lead by imposing stricter export controls.
The unified approach to export controls, with the U.S., Japan, and the Netherlands coordinating their restrictions, strengthens the democratic bloc’s ability to counterbalance China’s influence. However, this creates concerns about protectionism, as the U.S. uses these measures to protect its interests. To address this, Japan and Taiwan are working with the U.S. to adopt the so-called “small yard, high fence” policy, defining the scope of restrictions while allowing cooperation among allied nations.
How Japan and Taiwan Can Respond
Suzuki suggested that Japan and Taiwan are highly complementary in the semiconductor industry. Japan excels in advanced manufacturing technology and equipment, while Taiwan specializes in mature foundry operations. The two countries can collaborate to create a more secure and reliable semiconductor supply chain.
Suzuki proposed three key points:
- Technology competition is inherently a security issue. Japan and Taiwan should strengthen their partnerships with the United States.
- Maintain indispensability. Build the “silicon shield” together to maintain economic security.
- Develop autonomy. Jointly advance technology and talent development to reduce dependency on other nations.
Economic security has become a significant concern for nations in this era of shifting geopolitics. As the backbone of modern industry, the semiconductor industry plays a critical role in this context. Strengthening U.S.-Japan-Taiwan collaboration in the semiconductor.